Brussels Office MarketView

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1 Brussels Office MarketView CBRE Research 2012 GDP -0.2% 2013 GDP 0.6% UNEMPLOYUMENT 7.2% EXPORTS -1.1% BUSINESS CONFIDENCE CONSUMER CONFIDENCE CORPORATE DEMAND REBOUNDS AND OFFICE RECONVERSIONS CONTINUE UNABATED Quick Stats Chart 1: Economic growth & inflation in Belgium QoQ Take up 86,323 m² i Availability 11.16% Quick Links More government savings ahead? Corporate demand rebounding Development activity remains subdued i 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% GDP Growth Inflation Source: Belgostat Reconversion compensates for negative absorption Prime headline office rents in Brussels remained stable Strong demand does not materialise in investment deals While economic growth came to a halt in the summer months, corporate demand seems to have rebounded. Rents appear stable, with voids marginally decreasing. A number of setbacks for the economy The fragile economic recovery that took place in Belgium and Europe over the last 2 years, encountered some significant setbacks over the summer months. A combination of the Eurocrisis, a further rise in oil prices and local fiscal pressure proved detrimental for economic activity in Belgium, resulting in negative GDP growth in Q2 and likely Q3. In the meanwhile, tensions on the European bond markets have eased. GDP growth for Belgium has been revised downwards to -0.2% for 2012, down from 0.4%. GDP growth in 2013 is currently estimated at 0.6%, down from 1.2%. Belgium will still outperform most EU member states in terms of economic activity, and also the Belgian labour market is showing strong resilience, with a 7.2% unemployment rate. Price growth is expected at 2.6 % in 2012, and normalise in 2013 at 1.8%. More government savings ahead? The government deficit in Belgium is expected to improve from -3.7 % in 2011 to -2.7% in 2012 and to -2.3 % in To do so, the Belgian gouvernment has recently declared to search additional savings of 1 billion EUR in 2012 and some 4 billion EUR in This will likley increase fiscal pressure in 2013, although more structural savings on government expenses would be much appreciated.

2 DEMAND CORPORATE DEMAND REBOUNDING Chart 2: Take-up 700,000 m² 600,000 m² 500,000 m² 400,000 m² 300,000 m² 200,000 m² 100,000 m² 0 m² Q4 Q3 Q2 Q1 Chart 3: Type of occupants (2012) Business Services Computers/Hi-Tech CSL 41% Financial Services MIE Professional 5% Public Sector 16% 9% 7% 7% 15% 2 A relatively healthy 86,323 m² of office lettings were signed in Brussels in the third quarter of 2012 A large volume of smaller office lettings buoyed the market. 86,323 m² of office lettings were signed in the Brussels offfice market in the third quarter of Corporate take-up seems to have rebounded in Q3, with more companies looking at the market now. Downsizing and reducing office occupation costs remains an important driver of transaction activity however. A large volume of smaller office lettings A relatively healthy 86,323 m² of office lettings were signed in Brussels in the third quarter of 2012, bringing the total volume of office take-up in the first nine months of 2012 to 339,513 m². Again a large volume of smaller office lettings buoyed the market. With only 13,485 m² of take-up by the public sector, the corporate sector accounted for 84% of letting activity in the period (58% year-to-date). Business services was the most active occupier type in Q3 accounting for 18,681 m². Within this group, law firms Lombard Odier Darier Hentsch & Cie and Bain & Company were amongst the largest takers of space, leasing 1,848 m² and 1,974 m² in the Wiltcher s and the Blue Tower, both located in the Avenue Louise. Elsewhere, the public sector accounted for 15,299 m², while Financial Services and Consumer Services & Leisure (CSL) continued to perform strongly relative to other business groups, with each contributing another 13,000 m² of the total. Given the slew of transactions by corporates, most take-up activity was indeed seen in the Airport quadrant in Q3. In total, the Periphery Airport attracted 53,065 m² of office demand, year-to-date, with only the Leopold Area doing better accounting for 110,537 m². Flight to quality while saving costs Corporate take-up seems to have rebounded in Q3, with more companies looking at the market now. An increased level of active demand in the market does provide optimism

3 going forwards, and could lead to a more pronounced flight to quality, as occupiers relocate from older properties. Downsizing and reducing office occupation costs remains an important driver of transaction activity, as exemplified by the recent decision of Levi s to leave the Brussels Capital Region for the Airport zone, cutting back its office space from m² to 5,768 m². Other significant lettings in the quarter include the letting of m² to Levi Strauss, the letting of 5,394 m² to ING Bank and the letting 3,093 m² to McSquare, all at the Airport Plaza business park in Diegem. The 34,000 m² Airport Plaza is the latest business park that was added at risk to the Airport office stock in 2010, and was able to let over 21,000 m² in the last 12 months. Downsizing and reducing office occupation costs remains an important driver of transaction activity Airport Plaza is quickly filling up The most notable transaction of the quarter occured in the North Area and concerns the sale of the UP36 building in the UpSite project to PMV (Participatie Maatschappij Vlaanderen). UP36 will be occupied by GO! Onderwijs. Table 1: Key Transctions in Date Address Submarket m² EUR/m² Occupant 07/ Bruxelles, Quai de Willebroeck (Up-Site - UP36) North 6,189 m² Letting/ Acquisition Go! Onderwijs 09/ Diegem, Vuurberg 31 (Airport Plaza II) Periphery (Airport) 5,768 m² Letting Levi Strauss 07/ Diegem, Leonardo Da Vincilaan 31 (Airport Plaza I) Periphery (Airport) 5,394 m² Letting ING Bank 07/ Diegem, Leonardo Da Vincilaan 31 (Airport Plaza I) Periphery (Airport) 3,093 m² Letting McSquare 09/ Bruxelles, Chaussée de la Hulpe 120 (Solaris) Decentralised (South-East) 2,271 m² Letting Bull 07/ Bruxelles, Boulevard Industriel 55 (Riverside Business Park) Decentralised (South-West) 2,200 m² Letting Univar 07/ Zaventem, Da Vincilaan (Corporate Village Elsinore) Periphery (Airport) 2,078 m² Letting The Office Operators 09/ Bruxelles, Bourgetlaan 44 (Leopold Square) Decentralised (North-East) 2,003 m² Letting International Post Corporation 09/ Bruxelles, Avenue Louise 326 (Blue Tower) Louise 1,974 m² Letting Bain & Company Belgium 09/ Bruxelles, Rue d'arenberg (Wolfers) Centre 1,917 m² Letting Grontmij 07/ Bruxelles, Avenue Louise 81 (Wiltcher's) Louise 1,848 m² Letting Lombard Odier Darier Hentsch & Cie 3

4 DEVELOPMENT Development activity remains subdued Chart 4: Development pipeline 700,000 m² 600,000 m² 500,000 m² 400,000 m² 300,000 m² 200,000 m² 100,000 m² 0 m² e e 2013e 2014e Non-Speculative Speculative Committed Completed Office development is marking its lowest point in at least 15 years Development completions are not expected to peak again before at least In the meanwhile, the reverse process of office reconversion to housing continues unabated. Development activity remains subdued Development activity remained subdued in Q3 with no completions registered. Completion levels for the year are projected to total 44,000 m², marking its lowest point in at least 15 years of data collection on the subject. The development pipeline is forecasted to increase in 2013 with 158,479 m² scheduled for delivery. A large proportion of the new space scheduled for 2013 is reflected in the Belair project prelet to the Federal Police. Office reconversion keeps voids down Office reconversion continues at full strength. In Q3, another 29,217 m² of office stock have been sold to developers with housing in mind. Parc Seny, Marcel Thiry 208 and Marcel Thiry Court D are the latest office buildings undergoing the redevelopment process. The reconversion of office space has definitely gained momentum. In the last 4 years, over 350,000 m² of office space has been converted in alternative uses such as housing, elderly homes, hotels and schools. 4 With only 107,343 m² of new space planned for 2014, development completions are not expected to peak again before at least 2015.

5 VACANCY RECONVERSION COMPENSATES FOR NEGATIVE ABSORPTION The overall office vacancy rate in Brussels at the end of equals 11.16%, with 1,451,303 m² of office accommodation being officially marketed to let. Voids marginally decreased as compared to the previous quarter at 11.23%. New space becoming scarcer New office space is the main target of demand, and is quickly becoming scarcer in some CBD districts and the Periphery South quadrant. With little development coming online, this decreasing trend is likely to continue in the foreseeable future. CBD is recovering well The CBD submarkets are looking increasigly healthy, with only the more cyclical Louise district above 8%, at 12.38%. A number of outstanding space demands by the local and regional administrations in Brussels could force CBD voids further down in the coming quarters. Also the European Union is expected to announce some additional space requirements and transactions in the coming quarters. Lots of out-of-town activity, but little progress Out-of-town, voids turn around 20% or above for nearly all submarkets. Given a series of transactions in the Airport quadrant, voids decreased locally. The Decentralised South-East quadrant, has been able to keep voids down at 10.63%. Not surprisingly, the Decentralised South-East quadrant is a thriving residential market where older office voids are snapped up quite quickly by residential developers. Reconversion and net absorption balance out The positive effects on vacancy of the reconversion trend of office space (towards mainly housing) was largely offset by further negative net office demand in Q3. Year-to-date net absorption now totals -48,503 m². Since the start of economic crisis in 2008, net absorption has been negative. This, as a result of some companies downsizing and the overall cost rationalisation trend among corporates and the public sector. Office users are looking at space gains through formats such as desk-sharing and home-working. New office space is the main target of demand, and is quickly becoming scarcer Chart 5: Vacancy rate Chart 6: Net absorption 14% 200,000 m² 12% 150,000 m² 10% 100,000 m² 8% 6% 4% 2% 0% Grade C Grade B Grade A 50,000 m² 0 m² -50,000 m² -100,000 m² -150,000 m²

6 Rental values Prime headline office rents in Brussels remained stable Chart 7: Rental evolution 350 EUR/m² 300 EUR/m² 250 EUR/m² 200 EUR/m² 150 EUR/m² 100 EUR/m² 50 EUR/m² 0 EUR/m² transactions) Prime rent Average rent Economic rent (corrected for rente-free and voids) Standard deviation from average rent (68.2% of transactions) Rental appreciation expected AS NEW SPACE BECOMES SCARCER Prime headline office rents in Brussels remained stable at 285 EUR/m² during Q3. Also in the other submarkets, prime rents are stable. Rental appreciation expected on some assets With grade A office space getting scarcer in some submarkets and microlocations. Especially in the CBD, we expect prime rents to find ground for rental appreciation in the coming 2 years. Secondhand space continues to suffer Rents in non-prime buildings continue to come under further downward pressure in the period. Letting incentives to attract tenants differ strongly per submarket, but go up to 2 months per year secured in those office clusters that are plagued by subtantial office voids. In both the Decentralised Area and the Periphery around Brussels, landlords go to great extents to attract tenants, particularly for buildings in need of refurbishment. 6

7 INVESTMENT ACTIVITY STRONG DEMAND DOES NOT MATERIALISE IN INVESTMENT DEALS 227 million euro invested in Brussels offices In the first 9 months of 2012, 227 million euro was invested in Brussels offices. Total investment volume, including all property segments in Belgium, amounted to 1.1 billion euros in the same period. Perceived illiquidity Notable office deals have been scarce this year. Strong demand for core assets, long-term leases and distressed assets is still prevalent, but rarely materialises in effective deals. Fiscal uncertainty under the new anti-abuse guidelines might be one explanation for the perceived illiquidity in the office segment, the lack of good quality product on offer is another. Yields are stable Long-term leases trade at around 5%. Prime office yields in the Brussels market for standard 3/6/9 year leases are at 6.25%. Secondary assets with short-term leases trade at a yield gap of 75bp to 100bp as compared to prime yields. A further rebound in letting activity could signal the start of more investment product popping up. Chart 8: Investment volume (all properties in Belgium) 6.00 bio EUR 5.00 bio EUR 4.00 bio EUR 3.00 bio EUR 2.00 bio EUR 1.00 bio EUR 0.00 bio EUR Offices (Brussels) Offices (Regions) Industrial Retail Hotels & Leisure Elderly homes Residential 7

8 Table 2: Statistics per submarket Periphery (West) Decentralised (North-West) North Decentralised (North-East) Periphery (Airport) Centre Leopold South Decentralised (South-West) Louise Decentralised (South-East) Periphery (South) Submarket Stock Take-up 2012 Vacancy Prime yield Prime rent 8 Leopold 3,364,425 m² 110,537 m² 6.85% 6.25% 285 euro/m² Centre 2,114,448 m² 26,307 m² 5.09% 6.25% 225 euro/m² North 1,510,868 m² 36,953 m² 7.23% 6.75% 195 euro/m² South 468,672 m² 0 m² 2.85% 6.25% 185 euro/m² Louise 756,117 m² 24,293 m² 12.38% 6.25% 210 euro/m² Decentralised (North-East) 1,131,507 m² 11,344 m² 18.89% 7.75% 155 euro/m² Decentralised (South-East) 1,137,768 m² 25,083 m² 10.63% 7.75% 175 euro/m² Decentralised (North-West) 265,632 m² 2,935 m² 19.90% 7.75% 175 euro/m² Decentralised (South-West) 320,313 m² 10,170 m² 19.04% 7.75% 140 euro/m² Periphery (Airport) 1,359,817 m² 53,068 m² 24.28% 7.75% 150 euro/m² Periphery (West) 232,284 m² 16,053 m² 28.55% 7.75% 135 euro/m² Periphery (South) 348,136 m² 22,770 m² 14.95% 7.75% 150 euro/m² TOTAL 13,009,987 m² 339,513 m² 11.16% 6.25% 285 euro/m²

9 contacts For more information about this Local MarketView, please contact: BELGIUM Research Kim Verdonck Head of Research t: e: kim.verdonck@cbre.com +FOLLOW US GOOGLE+ FACEBOOK TWITTER CBRE RESEARCH This report was prepared by the CBRE Belgium Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer CBRE s.a. confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. 9